6. Skills for the future and next steps
Choosing a structure
After MyBnk enterprise programmes, some young people may decide that they want to continue their businesses and/or set up a new business. It's important that we can support young people who want to take further steps in business.
One of the decisions that young people will have to make as they move forward, is what legal structure works best for their business.
There are three key structures that young entrepreneurs will be likely to consider for their business. All of these structures have advantages and disadvantages.
(note: this table can't be viewed on a phone)
Options for social enterprises
We talk a lot about social enterprise in MyBnk programmes and some young people may be inspired to set up their own social enterprises. Some social enterprises operate with a standard sole trader, partnership or limited company structure.
However, another option could be a special structure called a Community interest company (CIC)
- A CIC is a legal form created specifically for social enterprises
- It has a social objective that is regulated ensuring that the organisation cannot deviate from its social mission and that its assets are protected
- They are registered with and regulated by the CIC regulator
Some social enterprises may even decide to set up a seperate or linked charity to deliver the mission. A charity must be registered with and regulated by the Charity Commission
Franchises
An entrepreneur can opt to set up a new independent business and try to win customers. An unusual alternative is to buy into an existing business and acquire the right to use an existing business idea. This is called franchising.
A franchise is a joint venture between:
- A franchisee, who buys the right from a franchisor to copy a business format.
- And a franchisor, who sells the right to use a business idea in a particular location.
Many well-known high street opticians and burger bars are franchises.
Opening a franchise is usually less risky than setting up as an independent retailer. The franchisee is adopting a proven business model and selling a well-known product in a new local branch.
Once an entrepreneur has decided on a structure for their business, they will have to consider how they want the organisation to operate on a day-by-day basis.
Tall organisations have many levels of hierarchy. The span of control is narrow and there are opportunities for promotion. Lines of communication are long, making the firm unresponsive to change.
Flat organisations have few levels of hierarchy. Lines of communication are short, making the firm responsive to change. A wide span of control means that tasks must be delegated and managers can feel overstretched.
Alternative Fundraising Options
Crowdfunding
Crowdfunding is the practice of funding a project or venture by asking a large number of people, usually the public, for small amount of money each. It has been particularly popular amongst young people as they generally don’t have the existing capital to fund their own projects.
Until recently, financing businesses involved asking a few large donors for large amounts of money, however the internet has made financial interactions over vast geographical areas seamless, creating millions of potential funders for projects.
There are around 450 crowd funding platforms, and in total in 2014 they raised over $16 billion worldwide. There are a few different types of crowdfunding:
1 – Donation method – people can donate money in small amounts to a project they believe has moral and ethical value and is good for the community. There is no return for the money given. E.g. GoFundMe
2 – Pre-order method – people make online pledges during a campaign or pre-buy the product for later delivery e.g. Kickstarter
3 – Reward-based model – investors get the satisfaction of helping and immediately receive a pre-determined reward or item of value
4 – Equity crowdfunding – people invest in an opportunity to exchange for equity. Money is exchanged for shares, or a small stake in the business, project or venture. As with other types of shares, if it is successful the value goes up. If not the value goes gown. e.g. Crowdmission
This video below also outlines the different forms of crowdfunding:
Peer to Peer (P2P) Lending:
P2P is the practice of lending money to unrelated individuals or ‘peers’ without going through traditional financial routes such as banks or building societies. These loans are unsecured and the interest rates are set by the lenders. Borrowers assessed as having a higher risk of default are typically assigned higher rates.
Many young people are choosing to put their savings into P2P lending as it offers far higher returns (up to 10%) than putting money into individual savings accounts. Individuals lent more than £1.5 billion this way in 2015 and the rate of those choosing this route continues to grow exponentially.
There are however risks when using P2P. Whilst most P2P sites are now regulated, there are no safety savings guarantees. If the institution goes kaput you are not guaranteed any of your lent money back.
Stratosphere Peer to Peer Lending Provides a useful video explaining how it works:
